Tristan Quinn, “Masters of Money (Episode 2: Hayek)” (2012)
Using a mix of interviews with former politicians, economists and academics together with a voice-over narrative by Stephanie Flanders of his life and times, this second episode in the “Masters of Money” series dwells on the influence of the Austrian-British economist / political philosopher Friedrich Hayek on global economics and politics in the 20th century. A major theme of this series is whether the work of the economist-philosophers featured is still relevant to economics and political philosophy and can offer ideas or solutions to the current malaise affecting Western economies. Affable presenter Flanders gives a chronological run-down of Hayek’s early life in Austria-Hungary against a background of middle class wealth and comfort, World War I and its aftermath, his arrival in the UK in 1931, his rivalry with John Maynard Keynes and the period of ideological wilderness he endured from the 1940s to the 1980s when his ideas and work defending classical economics were resurrected by the US and UK governments under President Ronald Reagan and Prime Minister Margaret Thatcher respectively.
The program is stronger delineating Hayek’s early life and the ideological underpinnings of his work than it is dwelling on his later life. The structure of the program seems quite muddled and hinges very heavily on following Hayek’s fortunes over the decades. The essential ideas of Hayek’s work – that economies should be completely free, that money flows should be completely free and allowed to achieve their own equilibrium, that centralised control through government institutions such as a central bank or regulated exchange rates or interest rates can be dangerous – are present. A theme emerges very strongly from this episode: Hayek’s distrust of government and its control over a nation’s economy (and ultimately society and culture, politics and the level of freedom allowed to citizens) through monetary and fiscal policies. Influenced by Charles Darwin’s theory of natural selection, Hayek believed markets were best left alone by governments to regulate themselves and governments should be content to provide the rule of law and a social safety net (as opposed to instituting a cradle-to-grave welfare state) and ensure the proper flow of information to enable markets to function on their own effectively. Throughout his life Hayek opposed political systems that were premised on centralised government control. (Curious to think that in his own way, Hayek was something of an anarcho-capitalist.) His rivalry with Keynes centred on the problem that if the economy was in trouble and in recession, whether governments should step in and try to solve the problem: Keynes believed governments should spend to stimulate the economy, Hayek was in favour of leaving alone and letting the economy sort itself out.
Hayek’s ideas were attractive up to a point to the US and UK governments and private business interests but even the most laissez-faire elements in those agencies still wanted some power and control in and over economies. Hayek himself wasn’t immune to contradictions in his own behaviour and thinking vis-a-vis the implications of his work and ideas: he admired Pinochet’s rule of Chile, accepting awards and honours from the military government there and went so far as to recommend Pinochet’s restructuring of the Chilean economy to Margaret Thatcher. Though opposed to dictatorships, Hayek decided that a dictatorship creating a liberalised, deregulated economy in the short term (with the expectation that the dictatorship would give way to a democracy) was to be preferred to a country, whether democratic or not, that had a regulated economy.
There’s very little critical examination of Hayek’s work in the program which on the whole is quite breathless and fawning in its race through Hayek’s ideas. Hayek’s own interpretation of Darwinian natural selection might be problematic: if his interpretation is based on a belief that such evolution is based purely on competition and the competitively based survival of species (a view popular in the late 19th and early 20th centuries), then his work may not allow for co-operation and it will be flawed in that respect. Nearly the whole edifice of his economics teeters on that interpretation! Another possible problem is that Hayek misunderstood the natures of fascism and Communism and how these political ideologies came to the fore; conflating the two together, he failed to see that his work could be corrupted by governments and private interests and turned into a tool of political and economic control. Hayek’s belief that the free flow of information would enable money to flow efficiently to where it’s most needed and is most useful falters against what we know of human behaviour and the phenomena of groupthink and herd psychology in markets: in some situations, too much information about money flows, combined with time restraints on decision-making and awareness that time and money are being wasted with delays in decisions, can lead to a wrong decision being taken, and everyone blindly following that decision. A small action can lead to disequilibrium in money flows which in turn compound the problem by shutting off options and alternatives and forcing investors down paths in which they might make worse decisions.
It’s ironic that Hayek, in setting out to do what he believed was good for human society, might have come to flawed conclusions about human psychology, economics and the behaviour of markets that have had adverse impacts on societies across the world, increased social, political and economic inequalities and made our world more insecure, more prone to fascism and more enslaved to a global power elite in whose hands economic and political power has become more centralised, not less.